Liquidity

How easily an asset can be bought or sold at a fair price without moving the market. It is high for large ETFs and major indices, low for niche holdings.

Liquidity describes how quickly and cheaply an asset can be turned into cash near its fair value. A large, widely-traded ETF is highly liquid; a thinly-traded security may only sell at a discount, especially under stress.

Liquidity matters for a rules-based strategy because it decides whether a signal can actually be acted on at reasonable cost. It is one reason broad, heavily-traded indices and funds are preferred as building blocks.

Related terms

ETF (Exchange-Traded Fund)A fund that trades on an exchange like a single share and usually tracks an index, giving low-cost, diversified exposure to a whole market.
Fund fees (TER)The ongoing cost of holding a fund, quoted as a total expense ratio (TER). Small-looking annual fees compound into large sums over an investing lifetime.
Asset classA broad category of investments that behaves distinctly (equities, bonds, gold, commodities): the building blocks of a diversified, tactically allocated portfolio.

Read it in context

What an ETF isAn ETF is a fund whose shares trade on an exchange like a single company's. You own shares in the fund and the fund owns the assets, so one purchase gives you exposure to everything inside it. The wrapper is straightforward; what decides your risk is the rule that fills it and what it costs to hold.